Jobs Reports: October Private-Sector Employment Up by 571,000; the ‘Great Resignation’ Effect on Commercial Estate
In the first of several major reports this week on U.S. employment, ADP, Roseland, N.J., said private-sector employment increased by 571,000 jobs from September to October.
In a separate report, Fitch Ratings, New York, warned commercial mortgage servicers are facing unprecedented turnover levels and filling open positions in the tight labor market could ultimately increase the cost of servicing loans.
The monthly ADP National Employment Report said by company size, small businesses (1-49 employees) added 115,000 jobs; medium businesses (50-499 employees) added 114,000 jobs and large businesses added 342,000 jobs.
By sector, the report said goods-producing employers added 113,000 jobs, while service-providing employers added 458,000 jobs.
“The labor market showed renewed momentum last month, with a jump from the third quarter average of 385,000 monthly jobs added, marking nearly 5 million job gains this year,” said Nela Richardson, chief economist with ADP. “Service-sector providers led the increase and the goods sector gains were broad based, reporting the strongest reading of the year. Large companies fueled the stronger recovery in October, marking the second straight month of impressive growth.”
Mark Zandi, chief economist of Moody’s Analytics, noted the the job market is revving back up as the Delta variant of the coronavirus pandemic winds down. “Job gains are accelerating across all industries, and especially among large companies,” he said. “As long as the pandemic remains contained, more big job gains are likely in coming months.”
Meanwhile, Fitch Ratings said the “Great Resignation” is having a noticeable effect, reporting commercial mortgage servicers are facing unprecedented turnover levels and filling open positions in the tight labor market could ultimately increase the cost of servicing loans.
However, to date, Fitch has not observed any noted declines in servicing proficiency among Fitch-rated primary, master and special servicers. Fitch views turnover on a trend-over-time basis and does not expect any rating implications.
Fitch reported lower than average employee turnover in its rated servicers in 2020 as employees transitioned to remote working and rode out the uncertainty of shifts in the workplace. Those uncertainties resolved themselves in 2021 as commercial loan debt issuance stabilized, servicing portfolios began to grow and servicers began hiring again. Simultaneously, long-tenured employees have been taking a closer look at retirement. Additionally, remote working has become a quality of life factor, which some employees are less willing to give up as servicers return to the office.
Collectively these factors have led to an increase in employee turnover across the staff and management levels, particularly in the Kansas City, Dallas, Miami, and Washington D.C. markets, which have high concentrations of servicers. At the same time, servicers with geographically diverse offices and remote working options generally experienced less turnover.
Fitch said historically, servicers have been able to leverage technology efficiencies to mitigate increased labor costs and employee departures; however, there are limited new operational efficiencies on the horizon, and increased labor costs, the largest portion of servicers’ operating budgets, limit the capital available to invest in new initiatives. It also noted primary servicers have had increasing staffing needs to monitor insurance compliance and performing loan surveillance, important credit protections for lenders.
While servicers have generally been able to staff up to meet growing portfolios, Fitch has observed a backlog of open positions due to competition for talent. “Servicers have had to increase compensation expectations for new hires and create more formalized remote working policies to attract talent,” the report said. “Prior to the pandemic, remote working was limited in commercial servicing and while there are key functions need to be performed in the office, improvements in technology, and more than 18 months of remote working have demonstrated that many functions do not need to be done in an office. Fitch has seen an increased willingness among servicers to hire staff remotely almost as a defensive measure as well as means to recruit experienced talent.”
Fitch said it also expects special servicers, which added staff to address the influx of borrower requests for debt relief and defaults over the last 18 months, will see a decline in staffing as temporary secondments end and lower default volume mitigates the need to backfill asset manager departures.
More employment reports come out this week. This morning, the Labor Department releases its weekly Initial Claims report for unemployment insurance; and on Friday, the Bureau of Labor Statistics releases its monthly Employment Situation report. MBA Chief Economist Mike Fratantoni and other economists will provide commentary and analysis in the Monday, Nov. 8 edition of MBA NewsLink.
